Report: Estimated '42% of Recent Layoffs Will Result in Permanent Job Loss'

By Michael W. Chapman | May 22, 2020 | 10:32am EDT
(Getty Images)
(Getty Images)

(CNSNews) -- In a May 2020 briefing paper, the National Bureau of Economic Research (NBER) reported that its analysis of current and historical job layoffs and recalls indicate that, because of COVID-19, an estimated 42% of "recent pandemic-induced layoffs will result in permanent job loss."

The NBER added that "the longer it takes to bring the economy back on line, the larger the fraction of recent layoffs that will turn out to be permanent." In other words, the longer the economy is in "lockdown," the more jobs will be lost permanently.

(Getty Images)
(Getty Images)

The NBER explained that there are the current job layoffs but because of the way the pandemic --and its duration -- is altering "consumer demand and business practices," these altering economic effects will carry on long-term.

"Even if medical advances or natural forces bring an early resolution to the crisis, many pandemic-induced shifts in consumer demand and business practices will persist," states the NBER report, COVID-19 is Also a Reallocation Shock.

"Thus, much of the near-term reallocative impact of the pandemic will also persist, as indicated by our forward-looking reallocation measures," say the paper's authors.  "Drawing on our survey evidence and historical evidence of how layoffs relate to recalls, we estimate that 42 percent of recent pandemic-induced layoffs will result in permanent job loss."

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(Getty Images)

"If the pandemic and partial economic shutdown linger for many months, or if pandemics with serious health consequences and high mortality rates become a recurring phenomenon, there will be profound, long-term consequences for the reallocation of jobs, workers and capital across firms and locations," reads the paper. (Emphasis added.)

"[E]ven as much of the economy is shuttered, some firms are expanding in response to pandemic-induced demand shifts," they are creating a massive reallocation of labor and resources. COVID-19 is a "massive reallocation shock" to the economy, according to the report.

The briefing paper then notes that the restaurant industry is a good example of how the pandemic is causing a variety of "reallocations."

  (Getty Images)
(Getty Images)

"According to a survey conducted by the National Restaurant Association in late March, 3 percent of restaurant owners and operators have permanently closed in response to COVID-19, and another 11 percent anticipate permanently closing within the next 30 days," according to the NBER.

"Applying these figures to the number of U.S. restaurants yields more than 100,000 permanent restaurant closures in the near-term wake of the COVID-19 shock," states the report. "At the same time, takeout and delivery-oriented chains are experiencing a huge demand boom, as illustrated by the anecdotes for Domino’s Pizza and Papa John’s. Much of this immediate reallocative impact will likely persist."

Business practices are changing; consumer demand is changing.

(Getty Images)
(Getty Images)

Looking at previous studies on layoffs and recalls, as well as the percentage thereof between March 1 and mid-May 2020, the NBER analysts calculate that 58% of the "gross staffing reductions" -- people laid off -- will get recalled. They will return to their jobs.

However, that leaves 42% that will not be recalled, meaning permanent job losses. 

"Applying the 42 percent figure to the 27.9 million new claims for unemployment benefits in the six weeks ending on April 25 yields 11.6 million permanently lost jobs," according to the report.  "This number does not include future job losses caused by the COVID-19 shock."

"For many firms, cash-flow problems today will become insolvencies in the future, and 'temporary' layoffs will become permanent," states the report.  "The longer it takes to bring the economy back on line, the larger the fraction of recent layoffs that will turn out to be permanent."

"Broadly speaking, we anticipate permanent job losses in three buckets: jobs lost due to COVID-induced demand shifts, jobs formerly at marginal firms that don’t survive the pandemic and lockdown, and jobs lost due to the intra-industry reallocation triggered by the pandemic and post-pandemic concerns about the transmission of infectious diseases," conclude the authors. (Emphasis added.) 

To read the full NBER report, click here

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